Supply-chain vulnerabilities highlighted by shortage of AdBlue

Australia’s supply-chain vulnerabilities remain in the spotlight with a recurrence of last year’s AdBlue shortage again threatening the transport sector and with it the supply of food to supermarkets, the provision of medical supplies to hospitals and the delivery of consumer goods.

Around half of the Australia’s road transport fleet is dependent on AdBlue and the sector is warning that we have only a few months’ supply. Along with freight vehicles, an increasing number of diesel luxury vehicles use AdBlue.

Late last year I highlighted our supply chains’ dependence on key enablers that are at the mercy of export and policy decisions by other nations.

AdBlue is a fluid derived from urea that is added to diesel to remove exhaust pollutants. Urea is also a base for fertiliser in agriculture, and until recently Australia imported most of its urea from China. However, last year in the face of increasing fertiliser costs and therefore rising food-production costs, China limited the export of urea.

The previous Australian government responded to the crisis with assistance to fertiliser manufacturer Incitec Pivot in sourcing natural gas (a precursor for urea production) and $29.4 million in funding for the company to increase urea production at its Gibson Island facility. However, Incitec announced in 2021 that it would close the Gibson Island facility at the end 2022.

This time, the problem looks the same, but the cause is the increase in the price of natural gas.

Despite the situation and the implications of the Incitec facility’s impending closure, the new Australian government said recently that there were ‘no forecast shortages’ of AdBlue and that Australia now has ‘additional supply chain diversity from countries other than China’. That solution, in many ways, perpetuates the problem.

Just-in-time supply-chain management had a shocking impact on national resilience during the  Covid-19 lockdowns and continues to be a source of challenges as the nation suffers devastating natural disasters. Our limited understanding of the reach of those supply chains and the traceability of goods along them was in large part revealed only when we experienced manufacturing bottlenecks and single points of failure.

Supply-chain mapping may identify risks, as I’ve previously noted, but mapping alone doesn’t identify vulnerabilities to national resilience. The AdBlue shortage is an example of a confluence of factors coming together as a national issue. Companies should be free to make commercial decisions and we should expect other countries to make decisions in their national interest. It is naive to expect others to base their decisions on our national interest.

We need clarity about what’s important for Australia to protect, which in turn will send compelling messages to the nation about where investment should focus. Bolstering supply-chain resilience through an understanding of potential vulnerabilities and focusing on the interactions between key supply-chain influencers is particularly important for fostering prosperity, resilience and security in regional and northern Australia.

We tend to think in absolutes when it comes to national industry policy. Australia can’t and shouldn’t retreat to a 1970s-style manufacturing approach, which was inefficient and highly subsidised—an artefact of economic policy designed to manage unemployment. A return to pre-Covid globalisation is also not the answer because it dismisses the sovereign challenges we’re experiencing in an increasingly complex and dangerous geopolitical world.

A national conversation about what is important for a sustainable future will generate creative and innovative solutions. Underpinning that conversation is the need to ensure we achieve the level of self-sufficiency and independence essential for a modern, forwarding-leaning nation.

In the case of this AdBlue shortage, we could (again) chase down alternative and more diverse sources of the fluid, but that won’t lessen our dependence on national-interest decisions by other nations, the vagaries of natural gas pricing or the potential environmental impacts of urea production. Abandoning air-pollution standards by exempting trucks and heavy vehicles from the requirement to use AdBlue is also not the answer.

It’s time to transform the transport sector with a more effective and sustainable solution through an intensive focus on transitioning our vehicle fleet from diesel to electric. To achieve that, we need to be willing to resolve the supply and demand challenges, provide incentives to transport fleet owners to transition to electric vehicles, and increase access to charging infrastructure, especially in regional areas. While this will require us to dramatically rethink transport and freight distribution arrangements, particularly across the vast distances in northern Australia given today’s EV charging ranges, it is doable.

If we continue to wait for supply-chain vulnerabilities to emerge so that we can put a short-term fix in place, we will continue to chase our tails and miss addressing the big strategic issues.

Australians are great at running hard to solve big national challenges. But with fires, Covid, floods and the consequential workforce and supply-chain challenges, we’re in danger of running out of steam. We need partnerships between governments, industries and communities to design and implement long-term and sustainable solutions that, over time, will reduce the need for reactive band-aid solutions.

This article was published by The Strategist.